Friday, March 22, 2013

Plenty of fat to trim if leaders get real

Over the past 60 years, Australia, like most Western countries, has seen a very rapid growth in the size of government. Whereas 60 years ago federal and state government accounted for about 25 per cent of the national cake, today it is 35 per cent.

In an attempt to emulate the cost savings that market forces impose on private-sector activities, governments place ''efficiency dividend'' requirements on the public sector. Traditionally a 1.5 per cent reduction in spending each year, this was raised to 4 per cent for the current year and was expected to result in 4200 jobs being shed and a saving of $500 million.

The problem is that activist governments dream up new functions, taskforces and commissions faster than they downsize existing departmental programs.

Finance Minister Penny Wong makes tough-sounding noises about belt tightening but nothing ever seems to come of it. And with vastly expanded education spending foreshadowed following the Gonski report and the National Disability Insurance Scheme already ''committed'', the outlook for expenditure looks to have been raised another notch or two.

The real issue with government spending is that the vast majority of it redistributes income from those the government considers are able to pay to those who are most worthy of support. But redistribution raises costs and reduces returns, thereby dampening producers' incentives to supply. At the same time it encourages more people to place themselves in the recipient category.

The net effect is lower growth and, as observed in those European countries with even more profligate government spending than Australia, this can deteriorate into economic decline. Unlike the private sector, the public sector will rarely find that a program's worth is so reduced from its original rationale that it is closed down.

Accordingly, I am proposing a root-and-branch assessment of the need for existing functions. This targets the many functions undertaken by the federal public service that offer little and sometimes negative value.

Except where duplication with state spending is concerned and where funds are spent on social research, the savings identified exclude the major health, education and welfare programs which account for some 60 per cent of government spending.

Such expenditures require political judgments and evaluations of one against another. The best approach would be to specify an aggregate fixed proportion of gross domestic product to the funding of these worthy expenditures.

Some $22.5 billion in program savings are identified below in addition to which are $2.4 billion savings in staffing costs. These entail 23,500 positions. Coincidentally, shedding that many people would return the public sector to its size, relative to the aggregate workforce, in 2001.

Some of the major items include:

More than $5 billion in foreign aid in the form of development assistance; this has never been instrumental in helping poor countries achieve economic relief and has a negative effect by focusing their administrative resources on obtaining assistance rather than transforming their economies into free-market productive entities.

$9 billion in Commonwealth duplication in housing, environmental and community amenities: these are state functions and the Commonwealth should leave them to that level of government.

Privatise the ABC and SBS, saving $1.2 billion; other media outlets raise their own revenues and so should the national broadcasters.

$2 billion in agriculture forestry and fishing; much of this deals with environmental barriers and industry-specific research activities, none of which have ever produced benefits significant enough to warrant their continuing funding.

$1.6 billion in general research grants; while much of the basic research of the CSIRO serves genuine collective needs, increasingly research in CSIRO, the Met Office and especially in the Australian Research Council has become politically oriented around climate change and social agitation.

Many functions should be cut entirely — the Climate Change Department being an obvious candidate.

In addition, most of Sustainability and Water, parts of Education, Health and Ageing, and Transport departments simply duplicate state functions and in some cases erect additional barriers to investment activity.

An incorruptible and politically neutral public service is a vital element in creating the conditions under which national prosperity can flourish.

Unfortunately many activities have massively outgrown any original rationale they might have had while others have become politicised or focused on their own empire building.

No comments:

RICHARD J WOOD

Today, those who subscribe to the principles of individual liberty, limited government, the free market, and the rule of law call themselves by a variety of terms, including conservative, libertarian, classical liberal, and liberal.

I see problems with all of those terms.

"Conservative" smacks of an unwillingness to change, of a desire to preserve the status quo.

Only in Australia do people seem to refer to free-market capitalism — the most progressive, dynamic, and ever-changing system the world has ever known — as conservative.

Additionally, many contemporary Australian conservatives favour state intervention in some areas, most notably in trade and into our private lives.

"Classical liberal" is a bit closer to the mark, but the word "classical" connotes a backward-looking philosophy.

Finally, "liberal" may well be the perfect word in most of the world — the liberals in societies from China to Iran to South Africa to Argentina are supporters of human rights and free markets — but its meaning has clearly been corrupted by contemporary Australian liberals.

The philosophy that animates my work has increasingly come to be called "libertarianism" or "market liberalism."

It combines an appreciation for entrepreneurship, the market process, and lower taxes with strict respect for civil liberties and scepticism about the benefits of both the welfare state and foreign military adventurism.

The market-liberal vision brings the wisdom of the Australian Founders to bear on the problems of today.

As did the Founders, it looks to the future with optimism and excitement, eager to discover what great things women and men will do in the coming century.

Market liberals appreciate the complexity of a great society, they recognise that socialism and government planning are just too clumsy for the modern world.

It is — or used to be — the conventional wisdom that a more complex society needs more government, but the truth is just the opposite.

The simpler the society, the less damage government planning does.

Planning is cumbersome in an agricultural society, costly in an industrial economy, and impossible in the information age.

Today collectivism and planning are outmoded and backward, a drag on social progress.

Market liberals have a cosmopolitan, inclusive vision for society.

We reject the bashing of gays, Japan, rich people, and immigrants that contemporary liberals and conservatives seem to think addresses society's problems.

We applaud the liberation of blacks and women from the statist restrictions that for so long kept them out of the economic mainstream.

Our greatest challenge today is to extend the promise of political freedom and economic opportunity to those who are still denied it, in our own country and around the world.